A lot of money could be riding on three letters.
The Pennsylvania Supreme Court has agreed to weigh in with its interpretation of the word “any” in the statutory definition of “stripper well”—a decision that could be bound to hit either the shale industry or the Pennsylvania Utility Commission in the wallet depending on which way it goes.
The high court granted allocatur Oct. 18 in Snyder Brothers v. Public Utility Commission, agreeing to review a March ruling by a split en banc Commonwealth Court panel that an unconventional gas well that produces fewer than 90,000 cubic feet of gas per day during one month of a calendar year is not subject to impact fees.
Act 13 defines a “stripper well” as an “unconventional gas well incapable of producing more than 90,000 cubic feet [cf] of gas per day during any calendar month.”
The panel had found that the General Assembly intended “any” to mean “one,” rather than “every,” when it said in Act 13 that a stripper well is one that falls below the threshold “during any calendar month.” Stripper wells, as opposed to “vertical gas wells,” are not required to pay impact fees. The case attracted the attention of the Pennsylvania Independent Oil and Gas Association, which was an intervenor on behalf of Snyder Brothers Inc.
In its two-page order granting allocatur, the Supreme Court agreed to take up the following issues, as stated on appeal by the PUC:
“(1) On a question of first impression involving substantial public interest, did the Commonwealth Court err in finding that the definition of ‘stripper well’ in the Unconventional Gas Well Impact Fee Act of 2012 (Act 13), was clear and unambiguous?
(2) Is the Commonwealth Court’s opinion based on factual and legal errors and is it a significant departure from accepted judicial practices?
- Did the Commonwealth Court err in its statutory construction analysis, misreading the definition of ‘stripper well’ in Act 13, ignoring relevant legislative history, and ultimately reaching a conclusion that is an absurd result?
- Where the commission is charged with the administration and enforcement of the impact fee provisions of Act 13, did the Commonwealth Court err in failing to give deference to the commission’s interpretation of Act 13?”
The lower court majority had little use for dueling interpretations of what it said was straightforward legislative language.
“Viewing the plain language of the statutory provision in a common sense fashion, we agree with petitioners that the word ‘any’ in the definition of ‘stripper well’ is unambiguous and it clearly and plainly means what it says—’any month,’” Judge Patricia A. McCullough wrote for the 5-2 majority.
“Because a calendar year is a definite class consisting of 12 individual months, the most natural way to construe ‘any’ is to interpret it to mean at least ‘one’ month out of the year, no matter what or which month,” McCullough continued.
The decision reversed an order of the PUC that sought a broad interpretation of the word “any,” which would have required Snyder Brothers to pay impact fees on 24 wells in 2011 and 21 wells in 2012 because they would have been classified as vertical gas wells.
“Ultimately, the commission’s interpretation of ‘any’ in a broad manner to mean ‘every’ is misplaced and would have this court engraft non-existent verbiage onto the definition of ‘stripper well,’ which is something that we are simply not authorized to do,” McCullough said.
The facts of the case were not in dispute, McCullough said. After the Bureau of Investigation and Enforcement in 2014 filed a complaint alleging Snyder Brothers had failed to identify and pay impact fees on its wells, the company claimed they were stripper wells and moved for summary judgment. An administrative law judge agreed with the bureau that the definition of “stripper well” was ambiguous and ordered Snyder Brothers to pay interest, a mandatory penalty at the 25 percent maximum rate, and a $50,000 discretionary civil penalty.
The PUC affirmed the ruling, noting that Snyder Brothers’ interpretation would impede the collection of impact fees and permit drillers to artificially lower their gas produced in one month to avoid paying the fees, McCullough said.
Snyder Brothers appealed, arguing that “any” unambiguously means “one,” not “each and every” or “all.”
In construing “any” to mean “one,” McCullough said, “we conclude that when an unconventional gas well cannot produce more than 90,000 [cubic feet] of gas in at least one month, it is a stripper well and is not subject to impact fees.”
McCullough also noted that Snyder Brothers submitted records showing it had consistently operated the wells to full capacity, indicating that its interpretation of the statute “would not thwart or undermine the purpose of Act 13 or permit well producers to escape its requirements.”
In reviewing Snyder Brothers’ alternative argument—that the definition of “any” is ambiguous and because the impact fees are taxes, the term must be construed in the company’s favor as a taxpayer—the court also sided with the company. The decision applied the rule of lenity, which says that when a statute is penal and its language is ambiguous, it must be construed in favor of the defendant and against the government.
“Assuming, arguendo, that ‘any’ is an ambiguous term, this court concludes that an analysis of the statutory construction factors does not resolve the ambiguity and that the ambiguity must be construed in favor of [Snyder Brothers],” McCullough said.
Judge Michael Wojcik dissented, joined by Judge Joseph Cosgrove.
Brandon Coneby of Dinsmore & Shohl in Pittsburgh, who represented Snyder Brothers, could not be reached for comment.
Pioga’s Kevin Moody said he was surprised the Supreme Court took up the case because, in his view, this is not an issue of first impression: In reaching its interpretation of the word “any” in Act 13, the Commonwealth Court relied in part on the Supreme Court’s 2007 decision in Commonwealth v. Davidson, in which the justices interpreted the word “any” in a statute to mean “one.”
A spokesman for the PUC also could not be reached for comment.
What are stripper wells?
From National Energy Technology Lab
Stripper wells produce natural gas or oil at very low rates: less than 10 barrels of oil per day or less than 60 thousand cubic feet of gas per day. Despite their small output, stripper oil and gas wells make a significant contribution to the nation’s energy supply; they are the lifeblood of thousands of small, independent oil and gas operating companies.
About 80 percent of the roughly 500,000 producing oil wells in the United States are classified as stripper wells. Despite their small volumes, they add up. The stripper oil wells in the United States produce, in aggregate, nearly 1 million barrels per day of oil, which represents almost 19% of domestic oil production.
When marginal wells are prematurely abandoned, significant quantities of oil remain behind. In some cases, as much as two-thirds of the oil remains in the reservoir. A common misconception is that oil left behind remains readily available for production when oil prices rise again. In most instances, this is not the case. Research that produces technology to help operators revive America’s declining oilfields also helps bolster the nation’s energy security by making it less dependent on foreign oil imports.
When marginal fields are abandoned, the surface infrastructure (the pumps, piping, storage vessels, and other processing equipment) is removed and the lease forfeited. Because much of this equipment was likely installed over many years, replacing it over a short period when oil prices rise, is enormously expensive. Oil prices would have to surpass their historic highs, and stay at elevated levels for years, before economic justification would be sufficient to bring many marginal fields back into production. As a result, once a marginal field is abandoned, the oil that remains behind is often lost forever. The costs of re-drilling a plugged well may be as much as, or more, than drilling a new well.
From 1994 to 2003, about 143,000 marginal oil wells were plugged and abandoned in the United States, representing over 110 million barrels of crude oil that was still in the ground.
In 2002, the number of domestic stripper gas wells in the United States grew for the eighth straight year, to nearly 246,000. These wells account for 1.4 trillion cubic feet of natural gas production per year, or roughly 10 percent of all onshore production in the lower 48 states. Overall, stripper wells are quickly becoming a critical element in meeting near-term increases in gas demand: increased stripper well production accounted for 43 percent of the overall rise in domestic production during 2001-2002.
Given their low production rates, stripper wells typically are marginally economic properties. And with each passing year, the economics continue to degrade. In particular, proper disposal of increasing volumes of produced water adds significant cost burdens to the well. Eventually, the well ceases to be profitable and is plugged and abandoned. In 2002, operators abandoned 3,870 gas wells, even though most of these wells were still producing some gas.
Although stripper well status is the necessary end-stage of all producing oil and gas wells, many wells decline to stripper production levels prematurely and unnaturally, often due to avoidable and repairable wellbore damage. NETL’s stripper well technology research will help determine ways to identify premature stripper wells and to develop effective remediative technologies that can result in higher production volumes, longer well life, and more efficient recovery of the available oil and gas resources.
